Mr. Paul Joseph, joint controller, stock exchange, in New Delhi has sent a communication to all stock exchanges in the country on the issue of registration of shares by companies. The provocation for it is obvious – the decision by DCM and Escorts not to register shares bought by the Caparo group of companies in London. Mr. Joseph’s purpose is also quite clean. On the face of it, he wants the stock exchanges to exert pressure on the two companies to register the shares. But since the stock exchanges are already engaged in such an effort, the communication must be seen as an encouragement to them to step it up. This is a rather unusual move on the part of an official acting on behalf of the Union government even if it is conceded that the government has reason to be concerned that the non-registration of shares bought on behalf of Mr. Swraj Paul can discourage other non-resident Indians from investing in Indian companies. For one thing, it cannot shirk its responsibility to determine whether Mr. Paul has acted, as he claims to have done, within the parameters of the rules laid down by it for investment by people of “Indian origin” abroad. For another, it has a more direct remedy open to it which is to ask Mr. Paul to refer the matter to the Company Law Board. Indeed, his reluctance to do so raises doubts whether his case is in fact as good as he makes it out to be.
The companies act, as it has stood for years, authorizes a company to refuse to register shares without assigning any reasons. But this does not arm companies with arbitrary powers. For, in the event of an appeal by an aggrieved party to it, the company law board can ask the company in question to disclose its reasons and reject them if it considers them to be improper. The law also says specifically that failure of the company to disclose its reason will go against it. And since the board can be expected to share the government’s concern that investment by non-resident Indians does not dry up, it can safely be inferred that it would not hold up a decision for long if Mr. Paul was to appeal to it. Why then the hitch? That is perhaps where Mr. Joseph’s unusual communication comes in. Basically, two issues need clarification which presidents of stock exchanges cannot provide. First, under the government’s scheme for investment by nonresident Indians and other relevant laws, are the 13 companies in the Caparo group to be treated as one buyer or 13separate buyers? This is relevant because under the rules no individual of “Indian origin” can buy more than one percent of the equity capital in any company. The Caparo group has bought almost 13 per cent in DCM and eight in Escorts. Secondly, if the group is to be regarded as 13 separate companies, does the limit of five per cent announced on May 2 apply to them or not? Here again two issues are involved – one of fact which is whether the group bought all the shares before May 2 or some after May 2, and the other of the law which is whether the limitation applies with effect from May 2 or retrospectively. The Reserve Bank of India is said to have examined these and other relevant issues and submitted a report to the finance ministry. Surely the people have a right to know its findings in order to be able to say who is in the right and who is in the wrong.